Shipping costs, a challenge for e-tailers profitability

Shipping costs, a challenge for e-tailers profitability

Julie Ribeiro

Julie Ribeiro

July 22, 2021

Shipping costs could weigh in heavily when consumers decide whether to complete a purchase or abandon the cart.

High shipping costs dissuade people from buying. Statista lists them as the primary reason for digital shoppers to abandon their carts. And even when consumers complete the purchase, they will remember that the product is great, but “the shipment was expensive.”

To remove this barrier, e-tailers could offer free shipping or reduce return costs.

Before considering these options, we should ask ourselves the following questions: How to calculate shipping costs? And, is it possible to decrease logistics expenses?

We will guide you through it in this article...

1. How are transportation fees calculated?

The four critical components of transportation prices are the weight of the package, its dimensions, the contents, and the speed of delivery.

Most experienced e-tailers know this. Delivery costs must be extremely low or even free for the consumer to promote sales. Inevitably, this means that you will be the one covering the costs.

That being said, it is essential to understand the components of the shipping fees. That way, we will be able to determine if we can reduce costs in time.

1. Package weight

Most carriers, including Colissimo and Chronopost, use the package weight to calculate logistic fees.

The rationale behind it: the heavier the package, the more it will cost.

2. Package size

If the weight of the packages was the only element in the equation, it would be so simple. However, we must also consider their size. The larger the boxes are, the fewer items the carrier can load in the truck or plane. Air carriers have traditionally calculated dimensional weight costs, but it is rapidly becoming the norm for road transportation companies, including Chronopost and DHL.

Therefore, it becomes clear that light but bulky items, like a pillow or a giant stuffed animal, are not a good deal for carriers.

It explains why the dimensional weight is becoming the norm. This is the formula to estimate it:

Dimensional weight = (l x w x h) / 5000 

  • l (length),
  • w (width), 
  • h (height) in cm

l x w x h allows us to calculate the volume of a package in cm3.

So, how do carriers use this parameter to calculate the shipping fees? Typically:

  • if the dimensional weight is bigger than the actual weight, freight prices will be based on dimensional weight;
  • however, shipping costs will be based on the real weight if the dimensional weight is lower than the actual weight.

Hence, the dimensional or actual weight will apply depending on the items to be shipped.

That is why we recommend comparing carriers and understand how they estimate shipping costs.

3. Contents

Depending on the value of the contents of the package, it would be wise to purchase supplemental insurance in the event of package damage or loss.

For example, shipping an expensive perfume or a designer piece should not be taken lightly. 

True, the package becomes the carrier’s responsibility when the merchandises arrive at the warehouse until they are delivered to the final client. However, there is a cap on the compensations and indemnities, and they end up being fixed at their discretion.

In the event of the loss of an expensive item, it is quite likely that the carrier’s compensation policy will partially cover the damages. Not only will you not recover the full value of your package, but you will also be obliged to send a new product to the client at your expense. 

4. Delivery speed

Standard delivery will obviously have a lower price than express delivery.

As you know, customers are becoming extremely demanding when it comes to delivery time. They expect their package delivered within 48 hours.

However, express shipping entails additional costs that are often negatively perceived by customers. Your challenge will be to educate them on the benefits of standard delivery: less expensive and more environmentally friendly. This will help you both cut costs and improve your brand’s image.

Additional costs to keep in mind

Shipping costs are not just about the transportation itself. 

They also include all the expenses involved in preparing the package, such as packaging and picking fees. Finally, if you are shipping internationally, you will have to pay certain taxes.

1. Packaging costs

When we think about the price of shipping, the most prominent factors that come to mind are the weight and size of the package.

However, packaging costs are an inevitable expense that takes a toll on your budget. This is especially true if you aim to bring the essence of your brand to your client’s home.

Thus, packaging customization to match your brand to ship your products, as Jollie’s socks or Dollar Shave Club do, are indeed part of the logistics costs.

2. Package preparation time

Preparing a shipment requires staffing and time.

Managing goods involves a great deal of organization. And unfortunately, preparing the packages for shipping requires exceptionally time-consuming tasks.

  • Receiving the products from your suppliers. The task becomes complex when you have to manage numerous product references or receive them in bulk (yes, we know what that is!)
  • The order picking. It entails finding the products the customer wants in your stock, putting the items together, adding goodies or flyers, and closing the package.
  • Updating the stock: if your store is relatively small or if you do not work with a logistics specialist, you will have to do this tedious task by hand daily.
  • Sending the parcels: this is a planning task. You will have to pick the carrier that best suits your needs, book an appointment, and be available for the collection of the packages.
  • Managing the returned items: the size of the shirt they ordered is too small? You will have to guarantee a post-purchase service to recover the product, reimburse your client, and put the merchandise back in stock.

3. International duties and taxes 

You are a French brand developing internationally?

Shipping products abroad is more expensive not only because of the distance but also due to customs duties that some countries may apply depending on the value of your product.

In general, exports involve hidden costs for international customers. As an e-tailer, you must inform them of the customs duties to come and spare them the unpleasant surprise of paying more than expected!

2. Is it possible to reduce shipping costs?

Use the proper packaging for the size of your product

As previously mentioned, some carriers will use the dimensional weight to calculate their profits, and therefore, the shipping costs that you will pay.

It is useless to pack a bedside lamp in a 1 m3 box and stuff it with bubble wrap.

At Bigblue, we select the best packaging to ship your products. We aim to eliminate the empty space in your packages, save you money, and lower the environmental impact of your products.

Reduce shipping mistakes

84% of shoppers are unwilling to buy from a company following a poor delivery experience.

It is crucial that you verify that the carrier takes care of the package. It may seem obvious, but in reality, delivery problems are pervasive.

This is even more frequent for “unconventional packages” conveying fragile items, like crystal vases, that cannot be handled mechanically. You will have to allocate an extra budget to guarantee smooth delivery.

Finally, we have not unusual delivery failures. When the delivery person has the wrong address, the package goes back and forth. This costs you money, and the customer experience of your brand takes a hit.

Avoiding delivery failures is a time-consuming endeavor if you have to verify all the addresses manually. Working with a logistics company will save you time and money. For example, at Bigblue, we developed an algorithm that automatically detects errors or not valid addresses and immediately notifies the e-tailer.

Hire a logistics provider to reduce shipping costs

Logistics are incredibly time-consuming. You should be investing your energy in growing your business.

"To each, his own" is a perfect saying to explain it. Working with a logistics company will allow you to focus on what matters most, avoid time-consuming tasks, and help you provide an exceptional delivery experience.

At Bigblue, we specialize in logistics for e-commerce. We take care of your stock, prepare your shipments, release you from time-consuming tasks while keeping your customers happy. Above all, we negotiate prices with carriers for you.

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